Shares of Broker MF Global Nosedive Over 60 Percent
Shares of MF Global, a big broker of exchange-trade futures and options, lost nearly three-quarters of their value during trading Monday.
The financial sector was generally under pressure from the fallout over Bear Stearns collapse and subsequent sale to JPMorgan plus the moves by the Federal Reserve to mitigate the ongoing credit crisis.
"MF Global understands the significant concerns across the markets," the company said in a statement issued midday Monday. "Our clients continue to show strong support, and our counterparty relationships are sound. We are seeing no impact on our repo lines. In addition, MF Global has no exposure to sub-prime mortgage-backed securities that have been the root cause of the current market environment.
"While the company uses third party repo lines, we have alternative funding in the event those lines are not available to the company. The company is very well capitalized with $1.4 billion in a committed, undrawn credit facility."
Repo lines, where a lender sells a security on the condition that it repurchase it later, are used to raise short term capital.
On Feb. 28, MF Global disclosed an employee made unauthorized trades that led to a loss of $141.5 million. MF Global said it discovered a trader at the company's Memphis, Tennessee branch trading wheat contracts in amounts that exceeded how much he was allowed to trade. The trader was fired and the contracts were liquidated, resulting in the loss.
Shortly afterward the options firm told investors it remained in solid shape financially.
"We remain very well capitalized, with a strong liquidity position," CEO Kevin Davis said in a letter to shareholders March 2. "Our capital includes shareholders’ equity of approximately $1.2 billion and a further $1.4 billion in undrawn committed credit facilities. We maintain our investment grade credit ratings."
Bermuda-based MF Global was split out from Man Group Financial in July of last year.
Other option trading outfits, like Interactive Brokers and GFI Group were under pressure Monday as well. Interactive